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Hawaii Resort Condos – Can You Cover Your Costs of Ownership by Rental Income?

The question of covering ownership costs by rental income is a common one for second home buyers as well as investors.

Kawaihae paddling

When I speak with clients in terms of “covering costs” for an investment, my response is nearly always the same; if you choose to rent your property, you will most likely recoup the taxes, insurance, HOA, and utilities if you paid cash for your property.

You will not be able to cover debt service in full, but likely a portion depending on the sales price, loan  amount, and schedule of your own use. Meaning that if you choose to occupy your property in prime rental season (Nov 15 – April 15th), you will not be maximizing the income, of course.

The slow times for the rental would be Sept 1 – Nov 15th & the month of May.

ML Ponds

The good news is that you would be buying a vacation property for yourself, or an investment property with help paying for it by rentals, in an obvious inclining market.

Estimated Expenses (Monthly)

Let’s take an example I recently provided for a client on a Waiulaula Ridge unit at Mauna Kea with a sales price of $1.250M with loan of 60% or $750k:

Loan: $3,690 (based on 4.25% 30 yr loan per recent rate sheets)
Taxes: $620 (from actual tax rolls)
HOA: $1,500
Utilities: $500  (estimate provided by owner/client)
Social mbr: $667 (silver level)
Maint/misc.: $300
Total mo est.: $7,277

The average income provided by the seller for this particular property was $100,000. At 75% (less prop mgr fee), your monthly net income would be approx. $6,250.

Please note I am using estimates and cannot guarantee any income amount, or that expenses will not surpass the estimates above. This exercise is for purposes of determining a rough estimate for affordability or return on the investment. Occupancy and income information should be obtained from either the sellers of each unit (if they rent), or by survey of available management companies.

We can relay information, of course, but are not involved directly in providing estimated income or occupancy. A good source to check is actually the VRBO.com site. This will give you an idea of the rates individual owners are charging and also give you a look at their calendars. (Note, however, that some people block out their calendars also for their own use, so this is just another source and not to be relied upon solely.)

Insurance for the maintenance and repairs of the buildings, grounds, and common areas is covered by the HOA fees. You would likely want to purchase coverage for your interior components and personal belongings, which will cost you approx. $500 per year. I suggest you speak with the same insurance company that the association uses so as not to double up any coverage/expense.

Kohanaiki beach

Other Factors to Consider

There are many factors involved in purchasing an investment property aside from the price. Wind, views, sunsets, proximity to amenities, and of course, noise are just a few of the factors that should be considered in addition to the size, quality, and location of a property.

The location of a condominium is important to you, both as rental and resale. Some buyers prefer a ground floor for easy access; others second story for optimal views.

If you are purchasing a property with an established clientele, and the bookings are part of the negotiations, it will be easier to maintain the income rather than starting a new clientele. However, if you are looking to purchase in a resort, such as my example demonstrates, the history for rentals is somewhat more simple to obtain and most property managers will be happy to take on the listings to their inventory.

A Good Realtor is Invaluable

We know the location of each building within a resort, the quality of construction, amenities available, layout of each unit, and what is covered in the homeowners for each complex, not to mention, which allow pets, whether or not a golf cart is allowed in the development, and who charges membership fees to use the resort grounds – and who has the best golf courses!

Living and loving my resort life!

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Beth Thoma Robinson, R(B)

March 18, 2014

Thanks, Pardner. This is a post we will often be citing as we respond to buyer inquiries!

Beth Thoma Robinson, R(B)

March 18, 2014

Thanks, Pardner. This is a post we will often be citing as we respond to buyer inquiries!

Sean

March 19, 2014

Great overview Pam. It be interesting to know stats on occupancy rate between Kohala resorts. It is amazing how quickly via VRBO you can analyze vacation rental rate structure. For example Wai Ula Ula- great ocean view unit VRBO $349/night 7th nigh free and appears to have good occupancy. However, look at Kolea rental rates- the smaller 2/2 units command same nightly rates and may have higher occupancy rates. I would guess capital investment maybe different also. VRBO and like have changed the landscape for owners and their ability to increase their annual net from short term vacation rentals properties. In fact you now see the the management companies list on VRBO to compete with “owners” because that is where vacation $$ traffic is growing.

Pam Deery, R(B)

March 19, 2014

Great point Sean. The difference between resort occupancy is a big consideration if your objective is to offset expenses by rental income. That is a new project for me to work on ..getting the average occupancy for each; Waikoloa, Mauna Lani and Mauna Kea though it may be a bit of a challenge if you wanted also to break them down categorically by investment range. Always up for a challenge:)

VRBO is a great tool.. but alas no longer the direct connect it was initially formed as.

A hui hou

Sean

March 19, 2014

Great overview Pam. It be interesting to know stats on occupancy rate between Kohala resorts. It is amazing how quickly via VRBO you can analyze vacation rental rate structure. For example Wai Ula Ula- great ocean view unit VRBO $349/night 7th nigh free and appears to have good occupancy. However, look at Kolea rental rates- the smaller 2/2 units command same nightly rates and may have higher occupancy rates. I would guess capital investment maybe different also. VRBO and like have changed the landscape for owners and their ability to increase their annual net from short term vacation rentals properties. In fact you now see the the management companies list on VRBO to compete with “owners” because that is where vacation $$ traffic is growing.

Pam Deery, R(B)

March 19, 2014

Great point Sean. The difference between resort occupancy is a big consideration if your objective is to offset expenses by rental income. That is a new project for me to work on ..getting the average occupancy for each; Waikoloa, Mauna Lani and Mauna Kea though it may be a bit of a challenge if you wanted also to break them down categorically by investment range. Always up for a challenge:)

VRBO is a great tool.. but alas no longer the direct connect it was initially formed as.

A hui hou

Edward Greenlee

April 10, 2014

I read a study from 2009 data that stated occupancy of managed homes was around 57% on Kauai. Has this changed much?

Pam Deery

April 10, 2014

Hi Ed; I know tourism on the Big Island has certainly gone up since 2009 but the statistics differently in each resort and development. Mauna Kea has a unique market of rentals and occupancy due to the high demand and low density.

Edward Greenlee

April 10, 2014

I read a study from 2009 data that stated occupancy of managed homes was around 57% on Kauai. Has this changed much?

Pam Deery

April 10, 2014

Hi Ed; I know tourism on the Big Island has certainly gone up since 2009 but the statistics differently in each resort and development. Mauna Kea has a unique market of rentals and occupancy due to the high demand and low density.

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